TMI Blog1998 (4) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Assistant Commissioner of Income-tax (Assessment), Trichy, has disallowed the provision so made on the ground of non-complying with the provisions adumbrated under section 40A(7) of the Income-tax Act, 1961 (Act No. 43 of 1961)-for short "I.T. Act"). The Commissioner of Income-tax (Appeals)-VI, Madras, also agreed with the Inspecting Assistant Commissioner of Income-tax. Before the Income-tax Appellate Tribunal, Madras Bench "D", Madras (for short "the Tribunal"), the assessee argued that section 40A(7) was introduced by the Finance Act, 1975, With retrospective effect from April 1, 1973. The conditions to be satisfied by the assessee in respect of the assessment years 1973-74 to 1976-77 are laid down under section 40A(7)(b)(ii). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the Revenue, were heard. Section 40A(7)(a) and (b)(i) and (ii) of the Income-tax Act-relevant for our present purpose---reads as under : "40A. (7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (Whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to--- (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year ; (ii) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (b) of this sub-section, 'admissible amount' means the amount of the provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason, to the extent such amount does not exceed an amount calculated at the rate of eight and one-third per cent. of the salary (as defined in clause (h) of rule 2 of Part A of the Fourth Schedule) of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made. Explanation 2.---For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied. The apex court further said that although payment of gratuity is made on retirement or termination of service, it is not for the services rendered during the year in which the payment is made but it is made in consideration of the entire length of service and its ascertainment and computation depend upon several factors. The right to receive the payment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the approved gratuity fund. Further, that sum is not for the purpose of payment of gratuity that has become payable during the previous year. It is after all a provision made for payment of gratuity on a future occasion when employees retire on superannuation. Therefore, such a provision made is after all a contingent liability and such liability is taken over by the Government. In this view of the matter, the assessee is not entitled to deduction of a sum of Rs. 1,80,255 in arriving at the taxable profits. We, therefore, hold that the Tribunal was right in holding that the provision of Rs. 1,80,255 for payment of gratuity is not deductible in arriving at the taxable profits, even though the entire undertaking had been acquired by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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